How to Read the Strategy Analyzer Report
System approach to trading is an inseparable part of trading as a profession. Naturally, every professional trader has a personal trading approach, personal preferences and view of risk/profit.
Some prefer daytrading using classic trend following approaches, some like intraday trading with numerous short trades. For some a loss of 15% from initial capital is not a problem at all, for some this kind of luxury is out of all question.
And surely there is not a single statistic value that tells if a trading system is good or bad. It all largely depends on personal preferences, but it's possible to point out a number of important issues that are worth attention when analyzing the eSignal Strategy Report. In other words, no matter what your trading approach is, there are definite borders for the values to lie within.
Strategy Analysis Tab
The most common error of strategy analysis is ignoring the relative values, such as the Max Strategy Drawdown (%) or Return on Account. Usually the first that catches a beginner's attention is Total Net Profit. Naturally, since it's the overall dollar profit or loss achieved by the trading strategy in the test period. But Total Net Profit is not such an important value, since it shows only the absolute profit or loss value. You may have a large Total Net Profit, but all the same suffer unacceptable losses during trading.
So the prime values are Gross Loss and Max Strategy Drawdown. Gross Loss of a strategy is most important, yet often overlooked. It should be noted that net profit increases not only when gross profit improves, but also when gross loss is reduced. Analyzing and working over losing trades is an extremely important part of trading strategy analysis.
As to the Max Strategy Drawdown and Max Strategy Drawdown (%) values, they show the largest equity dip that took place during the test period. The largest equity dip is the biggest difference between an equity high and a subsequent equity low. The Max Strategy Drawdown value forms the Account Size Required, i.e. the amount of money you must have on the account to start trading the strategy.
Only after analyzing Max Strategy Drawdown and determining the Account Size Required we can make an adequate evaluation of the Total Net Profit. This is accomplished by the Return on Account value . the sum of money you would make compared to the sum of money required to trade the strategy, after considering the margin and margin calls. This value is calculated by dividing the Total Net Profit by the Account Size Required.